Executive Compensation: Cutting Overseas Costs

If your company has ever sent executives overseas to work, you may well have been shocked by the cost.

How high can costs get? For every $100,000 of salary, companies often pay $300,000 to $400,000 in underlying costs for housing, living allowances, education, and foreign income taxes, according to William Sheridan, director of international compensation services at the National Foreign Trade Council, an international-trade lobbying group in New York City.

But don't despair. Sheridan urges small, growing companies to follow a strategy recently adopted by some multinational corporations: the practice, known as destination pricing, reduces some of the costs of sending U.S. executives to overseas assignments. "Instead of paying your executives so much that they can reproduce their American lifestyles, pay them whatever it will cost for them to live at a level comparable with their peers' in the country to which they're moving."

That will allow your company to reduce "some of the allowances, particularly the cost-of-living adjustment and housing payments, that result in higher foreign income taxes," says Sheridan. That will be doubly rewarding for your company if it reimburses its overseas executives for foreign income taxes, as most companies do.

How can you avoid an executive revolt? "Look for other, less costly ways to reimburse your executives for taking foreign assignments," urges Sheridan. Ask your accountant or lawyer for suggestions. "One approach might be to give stock shares if your company is public, or warrants if you anticipate an initial public offering."